Completion Report. Project Number: Loan Number: 2503 June 2014

Transcription

1 Completion Report Project Number: Loan Number: 2503 June 2014 Kazakhstan: CAREC Transport Corridor 1 (Zhambyl Oblast Section) [Western Europe Western People s Republic of China International Transit Corridor] Investment Program (Project 1) This document is being disclosed to the public in accordance with ADB s Public Communications Policy 2011.

2 CURRENCY EQUIVALENTS Currency Unit tenge (T) At Appraisal At Project Completion (15 October 2008) (31 December 2013) T1.00 = $ $ $1.00 = T T ABBREVIATIONS ADB Asian Development Bank CAREC Central Asia Regional Economic Cooperation CLG community liaison group COR Committee for Roads EARF environmental assessment and review framework EIRR economic internal rate of return EMP environmental management plan EU European Union FFA framework financing agreement IEE initial environmental examination ITS intelligent transport system JICA Japan International Cooperation Agency km kilometer LARF land acquisition and resettlement framework LARP land acquisition and resettlement plan MFF multitranche financing facility MOTC Ministry of Transport and Communications NGO nongovernment organization O&M operation and maintenance PMC project management consultant PPMS project performance monitoring system PRC People s Republic of China TOR term of reference VOC vehicle operating cost vpd vehicles per day CAREC Transport Corridor 1 investment program oblast region rayon district GLOSSARY Western Europe Western People s Republic of China (PRC) International Transit Corridor running from Khorgos at the border with the PRC, through Almaty and Shymkent, to the western border with the Russian Federation Borrower s investment program for the Zhambyl Oblast section of CAREC Transport Corridor 1

3 NOTE In this report, "$" refers to US dollars unless otherwise stated. Vice-President W. Zhang, Operations 1 Director General K. Gerhaeusser, Central and West Asia Department (CWRD) Director X. Yang, Transport and Communications Division, CWRD Team leader Team members R. Idei, Transport Specialist, CWRD A. Alam, Young Professional, CWRD N. Bustamante, Senior Operations Assistant, CWRD M. Capulong, Senior Project Officer (Transport), CWRD A. Chakenova, Associate Project Officer (Infrastructure), CWRD N. Djenchuraev, Environment Specialist, CWRD A. Galiev, Senior Public-Private Partnership Specialist, CWRD R. Jayewardene, Principal Social Development Specialist (Safeguards), CWRD L. Omarova, Senior Operations Assistant, CWRD N. Singru, Principal Transport Specialist, CWRD F. Trace, Transport Economist, CWRD M. Villanueva, Senior Operations Assistant, CWRD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

4 CONTENTS BASIC DATA MAP Page I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 3 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 4 G. Conditions and Covenants 5 H. Consultant Recruitment and Procurement 5 I. Performance of Consultants, Contractors, and Suppliers 6 J. Performance of the Borrower and the Executing Agency 7 K. Performance of the Asian Development Bank 8 III. EVALUATION OF PERFORMANCE 8 A. Relevance 8 B. Effectiveness in Achieving Outcome 9 C. Efficiency in Achieving Outcome and Outputs 9 D. Preliminary Assessment of Sustainability 10 E. Impact 11 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons Learned 13 C. Recommendations 14 i APPENDIXES 1. Project Framework Project Cost and Financing Plan Disbursement of ADB Loan Proceeds Project Implementation Schedule Chronology of Major Events Status of Compliance with Loan Covenants Project Contract Packages Summary of Road Operations and Maintenance Component Economic Reevaluation Land Acquisition and Resettlement Summary of the Multitranche Financing Facility Contribution to the ADB Results Framework Project Overall Assessment 48

5 BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number Kazakhstan 2503-KAZ CAREC Transport Corridor I (Zhambyl Oblast Section) [Western Europe Western People's Republic of China International Transit Corridor] Investment Program (Project 1) Republic of Kazakhstan Ministry of Transport and Communications Original: $ million Revised: $ million 1442 B. Loan Data 1. Appraisal Date Started Date Completed 2. Loan Negotiations Date Started Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness In Loan Agreement Actual Number of Extensions 6. Closing Date In Loan Agreement Actual Number of Extension 7. Terms of Loan Interest Rate Commitment Charges Maturity (number of years) Grace Period (number of years) 26 August September October October December March May July December December 2013 Financial Closure: 20 March 2014 None Sum of the London interbank offered rate and 0.60% as provided by Section 3.02 of the Loan Regulations, less a credit of 0.40% as provided by Section 3.03 of the Loan Regulations 0.15% per annum 25 years 5 years

6 ii 8. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval 11 December March months Effective Date Original Closing Date Time Interval 31 July December months b. Amount ($ 000) Last Revised Allocation Category Original Allocation Amount Canceled a Net Amount Available Amount Disbursed 1. Works Consulting Services Unallocated Total a b Undisbursed Balance b On 15 July 2010, the loan proceeds of $115,046,310 were canceled, and the allocation above was made on 7 November 2013 after several reallocations. Canceled at financial closing of loan on 20 March Local Costs (Financed) - Amount ($) Not applicable - Percent of Local Costs - Percent of Total Cost C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimate a Actual a Foreign Exchange Cost Total The project cost was not split by foreign exchange and local currency at appraisal. 2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower Financed ADB Financed Total ADB = Asian Development Bank, IDC = interest during construction.

7 iii Item 3. Cost Breakdown by Project Component ($ million) Appraisal Estimate Actual A. Base Costs a 1. Road Development Component a. Civil Works: Taraz Kulan (km ) b. Civil Works: Taraz Kulan (km ) c. Civil Works: Blagoveschenka Korday (km ) d. Construction Supervision Consultant e. Project Management Consultant Subtotal (1) Road Operations and Maintenance Component a. Improvement of Road Maintenance System b. Development of Intelligent Transport System Subtotal (2) Subtotal (A) B. Recurrent Costs b C. Contingencies Total Project Cost (A+B+C) km = kilometer. a Tax and duties are included. b Recurrent costs include the government s expenditure, such as costs for land acquisition and resettlement. 4. Project Schedule Item Appraisal Estimate Actual Procurement for Civil Works Contract a Q Q Q Q Date of Contract with Consultants 1. Construction Supervision Q Q Project Management Q Q Road Maintenance System Development Q Q Intelligent Transport System Q Q km Date of Award Q Q Completion of Work Q Q km Date of Award Q Q Completion of Work Q Q km Date of Award Q Q Completion of Work Q Q km = kilometer, Q = quarter. a With the Asian Development Bank s approval of advance contracting, the Ministry of Transport and Communications started working on the detail design prior to ADB s approval of the project.

8 iv 5. Project Performance Report Ratings Implementation Period Development Objectives Ratings Implementation Progress From 1 January 2009 to 31 December 2010 Satisfactory Satisfactory From 1 January 2011 to 31 December 2013 On Track a a From 1 January 2011, the project performance reporting system was replaced with eoperations. D. Data on Asian Development Bank Missions Name of Mission Date No. of Persons No. of Person-Days Specialization of Members b Fact-finding June c, e, f, p, t, te Appraisal 26 August 4 32 f, p, t, te 2 September 2008 Loan negotiations 6 9 October c, p, te Inception February aa, p, t, te Review a 21 April 1 May p, t Review a 6 14 June 2009 Review a 2 13 February p(2), t Review a 27 September 2 9 p, t 5 October 2010 Review a 26 January 4 February 2 10 p, s 2011 Consultation a March e, p, s, t, u Midterm review July p(2), t(2) Review a 4 11 October p(3), t Review a 9 16 February a, p(3), t(2) Review a 25 September 7 14 e, s, p(3), t(2) 8 October 2012 Review a 3 12 April p(2), t Review a 3 11 June p(2), t Review a July s Review a 5 20 September e, s Project completion review a October p(2), s, t a b Missions were combined for other projects. a = advisor, aa = analyst, c = counsel, d = director, e = environment specialist, f = financial specialist, h = advisor and head, n = economist, p = project officer, s = social development specialist (safeguards), t = transport specialist, te = transport economist, u = consultant.

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10 I. PROJECT DESCRIPTION 1. In December 2008, at the request of the Government of Kazakhstan, the Asian Development Bank (ADB) approved a multitranche financing facility (MFF) for the Central Asia Regional Economic Cooperation (CAREC) Transport Corridor 1 (Zhambyl Oblast Section) (Western Europe Western People s Republic of China [PRC] International Transit Corridor) Investment Program, not exceeding $700 million in total, and its first loan of $340 million from ADB s ordinary capital resources. 1 The framework financing agreement for the investment program was signed on 13 January 2009, while the loan agreement was signed on 30 March 2009 and made effective on 31 July The investment program was expected to rehabilitate or upgrade a part of the republican road network prioritized in the country s Road Development Program for , connecting the PRC and the Russian Federation, through Almaty and Shymkent. 2 At appraisal, the project had two components: (i) a road development component comprising of reconstruction of 79 kilometers (km) of a four-lane paved road between km 404 and km 483, and 46 km of a twolane paved road between km 214 and km 260; and (ii) a road operation and maintenance (O&M) component. The overall project impact was a sustainable economic development, while the project outcome was an efficient transport system in the Zhambyl Oblast. The executing agency was the Ministry of Transport and Communications (MOTC) and the implementation agency was the Committee for Roads (COR). II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 3. At appraisal, the investment program aimed to upgrade and/or construct about 480 km of highway sections in the Zhambyl Oblast, located in the southern part of Kazakhstan, and improve the nationwide road O&M system. The sections improved under the project are part of the CAREC Transport Corridor 1 (CAREC Corridor 1), linking Kazakhstan and the PRC to the east, Uzbekistan to the west and Russian Federation to the north, and Asian Highway No. 5, which connects Kazakhstan with European countries through Turkey. Hence, the sections financed are strategically vital in terms of Eurasian region traffic and trade. 4. During implementation, the project was included in the government s Road Development Program for ; 3 Transport Infrastructure Development Program for and Transport Sector Strategy up to 2015; 4 ADB s country partnership strategy and program; 5 and the regional cooperation strategy and program for CAREC countries, such as the CAREC Transport and Trade Facilitation Strategy. 6 At completion, (i) two sections totaling 125 km had been rehabilitated as originally designed (paras. 5 and 6); and (ii) studies had been completed 1 ADB Report and Recommendation of the President to the Board of Directors on a Proposed Multitranche Financing Facility and Administration of Loan to the Republic of Kazakhstan for CAREC Transport Corridor 1 (Zhambyl Oblast Section) [Western Europe Western People s Republic of China International Transit Corridor] Investment Program. Manila. 2 The investment program was to be implemented with the Japan International Cooperation Agency and the Islamic Development Bank, and will be completed by 30 June Ministry of Transport and Communications Road Development Program for Astana. 4 Decree of the President of the Republic of Kazakhstan Transport Sector Strategy of the Republic of Kazakhstan up to Astana. 5 ADB Country Strategy and Program Update for Kazakhstan ( ). Manila. 6 Central Asia Regional Economic Cooperation CAREC Transport and Trade Facilitation Strategy. Manila.

11 2 for the improvement of the road maintenance system and for the development of an intelligent transport system (para. 7). The Transport Infrastructure Development Program s goals are to upgrade republican roads located along the international transit corridors, including the project sections, and improve nonphysical transport systems, such as transport information management. The ADB country partnership strategy for supports modernizing the country s transport and logistics system, because the sector plays an important role in facilitating regional trade and is prioritized in ADB s investment. 7 However, about one-third of the loan proceeds were canceled during implementation, mainly because the unit price of construction materials was overestimated and excessive contingencies were included (para. 8). The project nevertheless remained relevant. The newly approved CAREC Transport and Trade Facilitation Strategy 2020 emphasizes the importance of urgent improvement of border crossing points located along the CAREC corridors, which will be considered as part of future projects. 8 The strategy for 2020 considers the use of various financial modalities, such as public private partnerships, to expedite completion of the CAREC corridors, including associated facilities. The project framework in Appendix 1 reflects the achievement of intended outcome and outputs. B. Project Outputs 5. Road development component. At completion, two sections had been improved: (i) 79 km of the concrete-paved section connecting Taraz and Kulan; and (ii) 46 km of the asphalt-paved section, a part of the section from Blagoveschenka toward the border of Kazakhstan and the Kyrgyz Republic, as designed at appraisal. The main works undertaken were (i) strengthening foundations, (ii) repaving road surfaces, (iii) rehabilitating and replacing existing culverts to adjust their design to the actual needs and ensure paths for local populations and their livestock, (iv) installing safety equipment and roadside facilities, and (v) executing ancillary works. The improved sections now enable smooth and comfortable driving, and routine maintenance of the project roads is in place Quality control of civil works was done by the construction supervision consultant; no outstanding quality-related problem has been reported during the defects liability period of the contracts to date. 10 During implementation, an issue related to the quality of construction materials was raised by a local nongovernment organization (NGO), as a result of cracks that appeared in the surface of part of the completed section. In response, MOTC conducted an indepth investigation including a reexamination of the quality of construction materials, and found that drying-related shrinkage after concrete placement was the main cause of the cracks, while confirming the materials used were of good quality. Nonetheless, the contractor replaced the pavement in the cracked section with new concrete, and reinforced the section by inserting steel dowels and joints to add tensile stresses to reduce the risk of further drying-related shrinkage. 7. Road operations and maintenance component. At appraisal, it was expected that the component would enhance the efficiency of MOTC s operation, particularly with regard to road 7 ADB Country Partnership Strategy: Kazakhstan ( ). Manila. 8 ADB CAREC Transport and Trade Facilitation Strategy Manila. 9 During inspection by the executing agency, it was confirmed that the international roughness indexes of the three sections were less than 1.1 meters per km. The Zhambyl Oblast Branch of the KazAvtoZhol Open Joint Stock Company is responsible for regular maintenance and cleaning works along the project roads. 10 The detailed design was prepared by Kazdorproject, a design institute assigned by MOTC. The applied pavement design standards primarily Stroitelnye Normy i Pravila (Russian Construction Norms and Regulations), harmonized with the other international standards, such as the American Association of State Highway and Transportation Officials and the British Standards sought to ensure durability given expected heavily-loaded trucks and a severely cold climate, and meet international standards.

12 3 maintenance systems and intelligent transport systems. The road maintenance system improvement subcomponent made various recommendations for future road sector maintenance operations, such as (i) conducting regular road condition surveys to help determine appropriate maintenance methods and timing, (ii) introducing an automated asset management system using geographic information system (GIS) software, and (iii) introducing performance-based maintenance contracts by using local construction firms. Another subcomponent focusing on development of intelligent transport systems (ITSs) produced: (i) a draft ITS plan showing the system s architecture and installation locations along CAREC Corridor 1 in the Zhambyl Oblast; and (ii) a draft long-term plan for ITS implementation that considers the institutional setup, budgeting, and technical aspects of hardware to be installed on republican roads (para. 32). These exercises provided critical inputs to the State Program for Development and Integration of Transport System Infrastructure up to 2020, adopted by MOTC in November 2013, as a framework to implement a comprehensive road asset management system over country s republican road networks. One of the program s major goals is to automate management systems for republican roads by installing GIS facilities and gantries. The program was prepared with the ministries of Economic Development and Budget Planning and Finance, because a strategic budget allocation is needed to implement the plan. 11 C. Project Costs 8. The total project cost was estimated to be $ million at appraisal. At completion, the actual project cost was $ million, about 33.50% less than estimated at appraisal. In July 2011, ADB approved the government s request for partial cancellation of the loan proceeds equal to $ million (33.84% of the original), because of savings identified after all civil works contracts were awarded in The savings resulted from overestimation of construction material unit costs and inclusion of excessive contingencies at appraisal. The remaining loan proceeds of $ million were considered sufficient to accommodate potential increases in the civil work contract amounts due to variation orders and price escalation. The total civil work contract amounts ultimately equaled $ million, including the government's financing, a 22.85% increase from the originally contracted amount, because of changes in scope and design during implementation, 12 and recent sharp increases in the price of construction materials (e.g., fuel and bitumen) and labor. The costs for construction supervision and project management consulting services were 29.10% less than the appraisal estimate, without major changes in the original scope. With regard to the road O&M component, the awarded contract amounts were also lower than the appraisal estimate. However, the consultants performed all the tasks as originally designed. The decrease in the consulting service costs was caused primarily by the overestimation at appraisal. The contract amounts at completion are shown in Appendix At appraisal, the project was to be financed by an ADB loan of $340.0 million (85% of total project costs). The balance of $60.0 million was to be financed by the government (15%). During implementation, $ million in ADB financing was canceled; at completion, ADB financed $ million (84.24%), and the government $41.91 million (15.76%). The appraisal and actual financing plans are in Appendix The plan targets achievement in The main changes were adjustments to the design and ancillary facilities of the roads to adjust to actual conditions and the needs of the local population, including (i) installing additional cattle crossings, culverts and safety facilities; (ii) increasing the amount of construction materials, such as soil and concrete, to strengthen the road foundations; and (iii) replacing utility facilities for continuous use after completion.

13 4 D. Disbursements 10. The loan was approved on 30 December 2008, signed on 30 March 2009, and became effective on 31 July All disbursements were made in accordance with ADB s Loan Disbursement Handbook (2007, as amended from time to time), and the direct payment procedure was used for all payments for civil works and consulting services. MOTC established the financial division within COR in 2009, and qualified staff were assigned and facilitated smooth disbursement in close coordination with ADB and the Ministry of Finance. Loan disbursements began in December 2009, and progressed smoothly for civil works and consulting services. The loan proceeds of $ million were disbursed, and the undisbursed amount of $0.85 million was canceled on 20 March The annual disbursement of the loan proceeds is in Appendix 3. E. Project Schedule 11. Road development component. At appraisal, the civil works contracts for the three sections were anticipated to end by December All contracts were awarded in November 2009, but were completed at various times. The works at the km and km sections were completed in November 2012, ahead of schedule. However, construction on the km section was delayed by 6 months, mainly because of shortfalls in the contractor s corporate cash flow, which interrupted procurement and delivery of needed materials and workforce mobilization (para. 22). All tasks on this section were completed in June The loan was closed on 31 December 2013 as planned at appraisal, and the project account was closed on 20 March Construction supervision consulting services began in November 2009, and the project management consulting services in December The contract for the construction supervision consultant was extended to June 2015 (about 24 months were added to the original contract period) to extend their services during the defect liability periods for the three sections. The contract for the project management consultant was extended until 31 December 2014 (about 20 months were added to the original) to continue assistance to the executing agency with tasks associated with the other tranches under the investment program, particularly monitoring safeguards issues and administering civil works contracts. Expenditures for these consulting services beyond the loan closing date of 31 December 2013 are being financed by the government. 13. Road operations and maintenance component. At appraisal, the component was expected to be implemented within 1 year, including consultant recruitment. However, it took longer to execute the component activities, because of a lengthy consultant recruitment process, and slow implementation. The consultant recruitment process for both subcomponents faced several setbacks, including the need to reissue the request for proposals (footnote 15). Additionally, the consultant took 26 months for the road maintenance system improvement subcomponent and 13 months for the ITS development subcomponent, from the issuance of notice-to-proceed until the MOTC s acceptance of their final reports (para. 21). The actual implementation schedule as compared with the schedule at appraisal is shown in Appendix 4, and a chronology of major events is given in Appendix 5. F. Implementation Arrangements 14. As agreed at appraisal, MOTC was the executing agency for the project, and COR was the implementation agency, responsible for day-to-day project management and implementation

14 5 in coordination with the Road Department of Zhambyl Oblast. 13 COR had staff with expertise in accounting, financial management, road engineering, construction supervision, environmental and social safeguards, and contract administration. The project management consultant was recruited under the project to assist COR oversee the investment program, while the construction supervision consultant was recruited to help COR supervise the contractors dayto-day works and administer their contracts. The institutional arrangement designed at appraisal worked well to facilitate completion of the project within the project period, but MOTC and COR needed close monitoring and guidance by ADB due to limited knowledge and capacity, particularly relating to safeguards and procurement (para. 23). G. Conditions and Covenants 15. The project complied with all major covenants required by the loan agreement. The government ensured that (i) the implementation took place as agreed at appraisal; (ii) required counterpart funds were provided properly; (iii) the project roads were rehabilitated in a timely fashion, in accordance with required technical specifications; (iv) preventive measures to ensure health and safety were taken during civil works; (v) adverse environmental impacts were minimized by implementing all mitigation measures stipulated in the environmental management plans (EMPs); (vi) land acquisition and resettlement were conducted in conformity with ADB policies and requirements, as stated in the project s land acquisition and resettlement plans (LARPs), and monitoring was conducted accordingly; and (vii) project accounts were audited annually, with reports of acceptable quality submitted to ADB as required. Appendix 6 shows the compliance status of major loan covenants. 16. Loan effectiveness was achieved 7 months after ADB s loan approval, owing to the government s lengthy and complicated internal procedures on loan signing and effectiveness. Similar prolonged procedures were observed in the subsequent tranches under the investment program. The government is considering internal changes to shorten the procedure and reduce the processing time. H. Consultant Recruitment and Procurement 17. Consultant recruitment. The consultant recruitment was undertaken in accordance with ADB s Guidelines on the Use of Consultants (2007, as amended from time to time). At appraisal, four consultant packages were designed, for (i) project management, (ii) construction supervision, (iii) development of an intelligent transport system, and (iv) improvement of road maintenance systems. All consultants were recruited following a quality- and cost-based selection procedure. 14 The consultant for package (i) was recruited on 10 November 2009, while the consultant for package (ii) was recruited on 14 October These consultants have been continuing their services for additional works after the loan closing (para. 12). The consultants for package (iii) were recruited on 2 December 2011, and for package (iv) on 20 December 2010, and completed their work in November 2012 and March 2013, respectively, on receipt of the MOTC s acceptance of their final report. Recruitment (from advertisement posting to contract award) for package (iii) took 24 months and for package 13 In 2012 civil works at the km section were supervised by the Road Department of Almaty Oblast. 14 All recruitment applied a quality cost ratio of 80:20.

15 6 (iv) 27 months; recruitment in both cases was slower than planned at appraisal because of difficulties experienced by the executing agency in the recruitment process Civil works procurement. The procurement of civil works was carried out in accordance with ADB s Procurement Guidelines (2007, as amended from time to time). As planned at appraisal, three contracts were procured through international competitive bidding among prequalified bidders, using a single stage, one-envelope procedure. The procurement for the three civil works contracts took 11 months, versus the 9 months originally scheduled, because procurement was rebid. 16 All contracts were awarded in November 2009, and the contractors commenced their works in January Civil works were completed in November 2012 for the two sections, and in June 2013 for the remaining section (para. 11). The summary of the contract packages is in Appendix ADB conducted a project procurement-related review during June September 2010, and concluded that the project had generally complied with relevant ADB guidelines on procurement and consultant recruitment, the framework financing agreement, and the project s loan agreement, except for a few deviations and areas for improvement. These include (i) questionable shortlisting of consultants and evaluation of bids and/or proposals, (ii) lack of due diligence in examining documents submitted by contractors and/or consultants, (iii) inconsistencies in applying shortlisting criteria, (iv) award of contracts after expiry of bid validity, and (v) inadequate information in the publication of contract awards. The review made recommendations for future project implementation: (i) reinforce the evaluation process and ensure selection of the most responsive and qualified bidder and/or consultant; (ii) strengthen controls and ensure the procurement and selection process is transparent, and conforms fully to relevant ADB guidelines; (iii) institute measures to ensure key proposed experts are available for deployment during their engagement term prior to finalizing a contract with a winning consulting firm; (iv) identify relevant training needed to reinforce procurement and disbursement capacity; and (v) examine the design of future tranches and institute measures to minimize costly variations. In addition, joint work with ADB s Kazakhstan Resident Mission was suggested to ensure that procurement integrity and transparency are established at the start of projects and maintained throughout implementation. I. Performance of Consultants, Contractors, and Suppliers 20. Consultants for the road development component. The overall performance of the consultants was satisfactory. The construction supervision consultant carried out all the tasks in line with the terms of reference (TORs); the original provision was for 598 person-months of inputs (94 person-months of international and 504 person-months of national consulting services). At completion, the consulting firm provided inputs totaling person-months (85.92 person-months of international and person-months of national services), an 18.36% reduction against the original provision at appraisal, while inputs were adjusted during implementation to strengthen monitoring of contractors compliance with safeguards 15 The lengthy procedures resulted from (i) the contract with the first-ranked firm for development of an intelligent transport system was terminated because the originally proposed experts were unavailable, necessitating reissuance of the request for proposals to the original shortlisted firms; and (ii) for the package of improvements of road maintenance systems, the MOTC staff shortages resulted in staff members not being properly involved in the recruitment process, which resulted in a lengthy review of the submitted expressions of interests and proposals, and failure to issue the proper request for proposals. 16 The rebidding was caused by cancellation of the first bidding, due to MOTC s misinterpretation of the ADB s Procurement Guidelines.

16 7 requirements and associated reporting in line with the loan agreement and ADB s relevant safeguards policies. The decrease resulted from efficient staff management by the consulting firm. The project management consultant performed the tasks given in the TORs with person-months of services (54.95 person-months of international and person-months of national consultant services), a 39.91% increase from the original provision of 149 personmonths (51 person-months of international and 98 person-months of national services). The increase resulted from the need to strengthen oversight function of the investment program, particularly with respect to contract administration and safeguards monitoring; the original TORs did not define requirements and deliverables to execute expected functions. In addition, a coordinator was added to the TORs for grievance redress mechanisms under the investment program (para. 36). 17 While MOTC was generally satisfied with the performance of these consultants, it had concerns about frequent replacement of international and national experts because of high staff turnover. In particular, the project management consultant s team leader was replaced four times for various reasons, such as health problems and inadequate capacity to perform tasks at an acceptable level. 21. Consultants for road operations and maintenance component. The overall performance of the consultants was satisfactory. The consultants for the component completed their tasks as originally given, and worked closely with the executing agency. At completion, the consultant for the road maintenance development subcomponent provided 36 person-months of inputs (18 person-months of international and 18 person-months of national expert time), with no change from the original. However, the consultant took more than 1 year, as originally set, to submit a final report of acceptable quality, because of slow responses to the executing agency s inquiries and comments on the draft final report. The consultant for the ITS development subcomponent completed their tasks to an acceptable quality within the schedule agreed on the contract. The consultant s input at completion was 42 person-months (18 person-months of international and 24 person-months of national services), as originally contracted. 22. Civil works contractors. The overall performance of the civil works contractors was satisfactory. The contractors completed the works in accordance with the required technical specifications. The contractors for two sections (km and km ) are rated highly satisfactory. They satisfied technical requirements and completed their works within the agreed schedule, despite various changes in scope during implementation, such as replacing utility facilities for gas, power and telecommunications; installing roadside facilities (lighting, restrooms, bus stops, and guardrails) and culverts in response to the needs of local residents; and additional earthworks for stabilizing foundations. The contractor at the km section extended the work period by 6 months without additional cost, because the parent company faced cashflow problems in 2012 and had difficulties in mobilizing the necessary resources to complete all tasks while meeting technical requirements. However, the contractor did complete all works and met all engineering requirements, and the performance is rated satisfactory. J. Performance of the Borrower and the Executing Agency 23. The performance of the borrower (the Republic of Kazakhstan), the executing agency (MOTC) and the implementation agency (COR) was satisfactory. COR, under MOTC s oversight, implemented the project in accordance with ADB s relevant guidelines and policies, facilitated timely release of counterpart funds, and complied with all the covenants during implementation. 17 The PMC is responsible for oversight of the four projects approved under the investment program and the CAREC Corridor 1 (Taraz Bypass) Project (Loan 2824-KAZ, approved on 7 December 2011).

17 8 As this was the first project after reorganization of MOTC, 18 close guidance by and consultation with ADB was needed, particularly regarding safeguards, and procurement and consultant recruitment and contract administration, because MOTC lacked adequate understanding of relevant ADB guidelines. It is expected that efforts to enhance MOTC s awareness and understanding during the remaining period of the investment program will continue in conjunction with the newly established authority. 19 Such institutional efforts will streamline implementation of projects financed by international financial institutions. K. Performance of the Asian Development Bank 24. Overall, the performance of ADB was satisfactory. The project was administered from ADB headquarters with active involvement of ADB s Kazakhstan Resident Mission. ADB built a sound relationship with MOTC and COR over the course of the project. During implementation, ADB provided timely guidance and support to MOTC and COR in approving advance actions; preparing and evaluating all documents related to procurement of civil works and consulting services by providing prompt and detailed feedback; and holding close consultations for timely and practical resolution of safeguards, and financial and technical issues. ADB s intensive involvement and close monitoring contributed to the timely project completion besides improving efficiency of internal approval procedures in the subsequent tranches. III. EVALUATION OF PERFORMANCE A. Relevance 25. The project is rated relevant, at appraisal and completion, because it is in line with the government s objectives and policies, and the relevant strategies, plans and programs of ADB and CAREC. The project design responded appropriately to the government s need to improve the safety, serviceability and operational efficiency of its republican road networks. However, during implementation about one-third of the original loan proceeds were canceled due to appraisal overestimates of the cost of civil works and consulting services contracts and provision of excessive contingencies (para. 8). Nevertheless, the project s designed outputs were fully achieved. With regard to the road development component, the project has improved conditions and serviceability of the two sections, which are vital in terms of regional connectivity (para. 3). The road O&M component has helped overcome the issues identified at appraisal: (i) an insufficient budget allocation; (ii) lack of comprehensive institutional arrangements, such as regulations addressing road maintenance operations, personnel, and republican road databases; and (iii) inadequate maintenance equipment. 20 The component recommended several methodologies of using appropriate equipment, including ITS, which were considered in the newly adopted state program, and are expected to be implemented by 2020 through government initiatives (para. 7). 26. The project was approved as the first tranche of the MFF, and three additional tranches were approved by 2011; these will enable completion of improvements to the Zhambyl Oblast 18 MOTC Decree 1193, 6 December KazAvtoZhol Open Joint Stock Company was established in 2013 and, at present, is responsible for implementation of road development projects financed by the government and maintenance works on republican roads under the MOTC s jurisdiction. From 2014, it will be gradually given responsibility for oversight of projects financed by international financial institutions. 20 Ministry of Transport and Communications Final Report for Road Maintenance System Improvement (prepared by Egis Bceom International). Unpublished.

18 9 section of the CAREC corridor 1 by June The subsequent tranches have benefitted from reduced approval procedures and flexibility in determining their scope. The summary of the MFF is shown in Appendix 11. B. Effectiveness in Achieving Outcome 27. The project is rated effective in achieving its designed outcomes through the designed activities. At completion, 125 km of all-weather roads were rehabilitated under the project, and the roughness of the project sections was reduced; 21 the road now offers comfortable conditions for long-distance truck drivers and bus passengers, and reduces travel time. The travel time from Almaty to Shymkent has been reduced from 12 hours to 10 hours. The target travel time of 8 hours is likely to be achieved by 2015, when all the roads financed under the investment program are open, as the ongoing civil works have diverted travel routes along the sections adjacent to the project roads. In addition, safety equipment, such as guardrails and median strips, and roadside facilities, such as gender-separated restrooms and roofed bus stops, are fully installed along the sections, to ensure the safety and comfort of users. However, the traffic volume along the project roads has not increased to the levels expected at appraisal. A major reason is that some road users have bypassed the corridor because of the ongoing civil works along the sections adjacent to the project roads. Once all the works are completed in 2015, users are expected to resume using the corridor, which will increase traffic. Furthermore, passenger fares were not reduced as expected; instead, public transport fares have increased in general along the project sections. For instance, there has been a 33.3% increase observed in taxi and bus fares between Taraz and Kulan in 2013 compared to 2010, which is partly driven by inflation. 22 Similar trends may be observed with respect to cargo charges. Consequently, a reduction in travel and freight cost is less likely to be achieved than expected at appraisal. The output achieved under the road development component has enhanced the performance of CAREC Corridor 1, particularly subcorridor 1b, because the improved surface quality enables faster travel. 23 However, time and cost incurred at the international border crossing point are understood to be bottlenecks, which requires further improvement. C. Efficiency in Achieving Outcome and Outputs 28. The project is rated efficient, as the economic reevaluation undertaken concluded that the project s overall economic internal rate of return (EIRR) was higher than ADB s benchmark 12%, and the project was completed on time and within the revised project cost (para. 8). An economic reevaluation was undertaken, using a methodology similar to that adopted at appraisal. The reevaluation compared the incremental change in investment and operation and maintenance costs against the incremental reductions in journey times and vehicle operating costs arising from completion of the project. Despite the actual project costs being approximately one-third lower than that projected at appraisal, the EIRR, recalculated at 16.2%, was actually lower than that estimated at appraisal (28.1%). The main reasons for the reduction 21 At appraisal, the roughness of the project sections was reported to be 5 to 7 on the international roughness index; at completion, the roughness of the project sections was less than 1.1 m per km. 22 SMEC International Final PPMS Social Safeguards Report. Astana. Compared with 2010, consumer prices in 2013 increased by 21.07% (International Monetary Fund, World Economic Outlook Database, October 2013 edition. (accessed 21 May 2014)). Hence, the fare increased by about 12% in real terms. 23 CAREC Trade Facilitation CAREC Corridor Performance Measurement and Monitoring (CPMM) Annual Report Manila. The report describes that the speed along the subcorridor 1b has improved the most, compared to the other subcorridors.

19 10 in the rate of return are: (i) forecast traffic growth in was lower than expected; (ii) the traffic forecast assumptions at reevaluation were more conservative; and (iii) the reevaluation noted, and corrected, an error in the economic analysis at appraisal. 24 As the recalculated EIRR is in excess of 12%, the project is still considered economically viable. Further details of the economic reevaluation are provided in Appendix 9. D. Preliminary Assessment of Sustainability 29. The project is considered likely sustainable. The KazAvtoZhol Open Joint Stock Company was newly established in 2013 (footnote 19), which is responsible for daily monitoring and maintenance of republican roads, while a sector development program was adopted in November 2013 (para. 7). In the program, the government plans to implement toll systems along the republican roads to ensure the sufficient budget for offering appropriate maintenance works. To enhance sustainability, the following actions should be considered. 30. Road maintenance. With recent rapid improvement of nationwide road networks, the importance of road maintenance has increased. It was reported that, on average during , 21.7% of the government s expenditure on roads was allocated to maintenance activities, with about 40% spent for routine maintenance (e.g., repairs to pavement), 28% for periodic maintenance involving replacement of wearing courses, and the remainder for capital repair (e.g., rehabilitation or reconstruction). 25 Routine maintenance, the cheapest form of maintenance, has been frequently applied even to seriously deteriorated locations for saving expenditures given that the allocated budget was lower than needed. 31. Ongoing effort is needed to ensure long-term road maintenance funding, as the government plans to increase the annual allocation from $76 million in 2014 to $165 million in 2020 to maintain republican roads under the executing agency s jurisdiction; this will be financed by introducing toll systems to generate revenues for regular maintenance. 26 In addition, there is an urgent need to standardize road maintenance works in the country, increase the number of staff and enhance their technical expertise to identify technically appropriate maintenance works, and implement these on time. These institutional actions are recommended in order to sustain project benefits. 32. Road asset management. Recommendations were made in relation to the road O&M component to put in place automated road asset management systems so as to ensure the satisfactory performance of republican roads (para. 7). ITS facilities make it possible to chronologically store data related to traffic volume, vehicle type, number of accidents and their causes, and maintenance logs and surface conditions, which will help determine the appropriate timing and the budget required for periodic maintenance throughout the lifecycle of the roads. The component is summarized in Appendix At economic reevaluation, it was noticed that the demand data for the with project scenario for the km section used at appraisal was incorrect, and mistakenly omitted more than half of the traffic that will use the project road. This had the impact of inadvertently reducing the with project costs, and inflating the rate of return on the project. 25 Ministry of Transport and Communications Final Report for Road Maintenance System Improvement (prepared by Egis Bceom International). Unpublished. 26 Specifically in the Zhambyl Oblast, where the budget for road maintenance was $2.20 million in 2012, 67.94% higher than the $1.31 million budget in Toll systems are planned in the new transport sector program to be implemented in 2015 along the roads financed under the investment program.

20 11 E. Impact 1. Environment 33. The project was classified as environmental category B at appraisal. An initial environmental examination (IEE) was carried out during project preparation in accordance with the ADB Environment Policy (2002), the investment program s environmental assessment and review framework, and the country s relevant laws. A cumulative impact assessment was also undertaken along the project roads to examine anticipated effects of the investment program and other development initiatives. The IEE found no significant environmental impact and an environmental impact assessment was deemed unnecessary. The relevant mitigation measures for identified site-specific environmental impacts were proposed in the IEE, and were included in the environmental management plan (EMP). All the contractors prepared site-specific EMPs, which were approved by the construction supervision consultant. 34. After commencement of civil works in 2010, it was found that the contractors, construction supervision consultant, and project management consultant had insufficient resources to conduct environmental monitoring and had only partly complied with the sitespecific EMPs. That caused complaints from local residents and NGOs about noise, dust and vibration occurring during civil works, as well as unregulated uses of quarries. A local NGO was independently monitoring the project and informed the executing agency and ADB of its findings of noncompliance. 27 ADB fielded several special missions to review the implementation status and discuss ways to overcome safeguards issues with the executing agency, the contractors, the consultants, the NGO, and the affected people, and to ensure ADB's environmental management requirements to minimize adverse impacts were met, in line with the site-specific EMPs. In addition, to sustain a solid safeguards monitoring system in the investment program, the executing agency increased the resources of the project management and construction supervision consultants (para. 20). The contractors and consultants came to understand their responsibilities with regards to environmental management and, as a result, the situation improved and environment-related complaints were eliminated at completion. The construction supervision consultant closely monitored the contractors implementation of the site-specific EMPs, and in particular, was required to closely monitor implementation around quarries and borrow pits that were considered sensitive receptors in the proximity of the project site. The consultant documented their findings in semiannual monitoring reports, and those reports were disclosed on ADB s website. 2. Land acquisition and social safeguards 35. At appraisal, the project was classified as involuntary resettlement category A, due to the number of potentially affected households and businesses. The original land acquisition and resettlement plan (LARP) was prepared in accordance with ADB s Involuntary Resettlement Policy (1995) and the relevant section of the ADB operation manual, and Kazakhstan s Constitution and Land Code (2003, amended in 2007) and State Property Act (2009), and disclosed on ADB s website in After commencement of civil works, several new households were identified as potentially affected by land acquisition or business losses, and their eligibility carefully examined by MOTC and relevant local authorities. Some were confirmed to be eligible to receive compensation, including a cash allowance and land transfer, in accordance with the original LARP entitlement matrix, and compensation was determined and 27 Taraz Press Club.